Indian growth momentum cause for concern – DNB manager

Parameswara Krishnan, portfolio manager on the DNB India fund, has said that investors face a “confidence deficit” caused by government inaction that threatens GDP growth and hence investor returns.

Recently output figures showed GDP growth dipped to an annualised rate of 5.3%, below the level seen after Lehman Brothers collapsed. Krishnan said that the problem facing the country was not lack of capital, inflation or demand, but the effect of the political establishment failing to enact policies that could assist growth prospects.

One area where this has been accutely felt is in fuel prices. Krishnan describes the government being in “prayer mode” for seven months over what to do about oil price changes being passed on to the consumer. The existance of state owned oil companies means that the supposedly decontrolled market is almost completely monopolised by the state. Because of politics prices at the pump were not allowed to rise when benchmarks such as Brent rose.

Recently the global price of oil fell, which has helped those companies on the brink of running out of cash – being forced to sell at a price below that at which it was bought wholesale – but the problems are now deeply rooted and affecting the currency.

“The government has not been able to explain that if the fuel prices are not passed on, inflation will appear in a bigger way through fiscal deficit and a currency in free fall. And the consumer will actually be worse off in the long term – and long term catches up with you pretty quickly nowadays due to globalization and market forcing your hand,” Krishnan said.

Another area of concern is bad bank debts. However, Krishnan is more positive, estimating that such debts are less severe than in the late 1990s, and that problem loans are unlikely to reach more than 4% of loans overall.

“This is indeed a very healthy sign and gives enough confidence that the banks will be able to manage the current slowdown.”

The problem is also not uniform; some sectors are harder hit than others – power, airlines – while certain banks such as HDFC Bank have “avoided th sectors under duress”.

 Top holdings

Company Weight Bet FY13 PE Business
Strides Arcolab Ltd 8.46% 8.46% 13.7 Healthcare
HDFC Bank 5.45% -1.28% 19.3 Banks/Financials
Redington 4.93% 4.93% 9.1 Electronic / IT Distribution
Indusind Bank Ltd 4.77% 4.77% 13.4 Banks/Financials
ICICI Bank 4.64% -1.72% 12.2 Banks/Financials
Lupin Ltd 4.38% 3.68% 20.4 Healthcare
Tata Consultancy 4.03% -1.09% 18.2 IT Services
Kotak Mahindra Bank 3.84% 2.49% 17.7 Banks/Financials
State Bank Of India 3.69% 1.28% 8.3 Banks/Financials
Reliance Industries 3.47% -4.62% 11.3 Oil & Gas

 Source: DNB


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